Being an entrepreneur means constantly making choices. Good
businesspeople weigh the options, make a decision and move on.
Great businesspeople measure the advantages and disadvantages of
the options against their business plans, make the right decision
and move on.

You know you want to go into business, but you're not
interested in starting from scratch; instead, you want to research
investment packages available to you. Here are your options: a
business-format franchise, a business opportunity venture or a
multilevel marketing package. Each has advantages and
disadvantages. Before you decide which route to take, understand
the structures of the various formats. Their pluses and minuses may
make all the difference.

Franchise Facts

Franchising is defined by state and federal laws as a commercial
relationship in which three factors are present: a licensed
trademark, a prescribed marketing plan, and the payment of a
franchise fee for the right to participate in the program. When
these three factors exist, the relationship is regulated as a
franchise by state and federal laws.

In business terms, a franchise is a continuing commercial
relationship in which the buyer, or franchisee, owns a business but
agrees to operate it using the trademark and business system
developed by the franchisor. The franchisor provides the franchisee
with detailed training and assistance to start and run the
business. In exchange, the franchisee pays an initial fee,
typically $5,000 to $25,000, as well as an ongoing weekly or
monthly royalty fee of anywhere from 3 percent to 8 percent of his
or her gross sales.

The greatest strength of franchising is its ability to bring
independent retailers together using a single trademark and
business concept. The benefits of this affiliation are many: brand
awareness, uniformity in meeting customer expectations, the power
of pooled advertising and the efficiencies of group purchasing.

For the individual owner, there are several advantages to
franchising. The ever-present risk of business failure is reduced
when the business program has already proved successful in the
marketplace; the use of an established trademark saves the business
owner the cost of creating and advertising a name that customers
will recognize; and the advantages of group advertising and
purchasing make operations more profitable. In addition, ongoing
training creates an instant operational expertise that would
otherwise need to be acquired through trial and error. Also, with
franchising, expansion seems to come more naturally. Operating a
successful franchise may quickly lead to building a second and then
a third business, and so on. Fortunes have been built this way.

Franchising, however, is not for everyone. Fiercely independent
entrepreneurial types (you know who you are) may chafe under the
strict operational requirements and specifications of a franchised
business. If things have to be done your way, you may want to head
in another direction.

Remember that some franchise systems are better than others. A
weak franchise program will not train you well to handle the
challenges of the business, will not do a good job of assisting you
when problems arise, and will not make the best use of your
advertising dollars.

If you're considering buying a franchise, don't let wild
expectations influence your decision. While franchising is designed
to put people into business who have never owned a business before,
the excitement of ownership can create an impulse to move forward
without proper planning. If you rush headlong into buying a
franchise expecting to boost your current working salary, but the
earnings don't allow you to pull out more than half your former
salary, you will be one unhappy camper. Work with a good CPA to
prepare a cash-flow projection for the business before you take the
plunge. Know how long it will take to break even and turn a profit,
as well as the amount of salary you'll realistically be able to
pay yourself.

Road Map

Federal and state franchise laws require a franchisor to provide
each franchise buyer with an offering prospectus, otherwise known
as a Uniform Franchise Offering Circular (UFOC). This document
provides a detailed description of the franchisor as well as the
franchise program being offered, and it's required reading if
you're serious about investing in a franchise.

Key sections in the UFOC will answer these questions for
you:

What exactly is the franchise company all about, and how long
has it been in this business? (Items 1 and 2)

What is the company's litigation and bankruptcy history?
(Items 3 and 4)

How much will the total investment be, and what are the fees
involved? (Items 5, 6 and 7)

Do I have to buy supplies, inventory or product from the
franchisor or from third parties designated by the company? (Items
8 and 16)

How much training will I receive? (Item 11)

Must I buy a computer system, and will the franchisor have
access to my computer data? (Item 11)

Will I receive a protected territory? (Item 12)

Is the company's trademark on solid legal footing? (Item
13)

Must I personally manage the business, or can I hire a manager?
(Item 15)

Can the franchisor terminate the contract under any
circumstances? (Item 17)

What are the names and addresses of the current franchise
owners and those who have left the system in the past year? (Item
20)

Can I see a copy of the franchisor's audited financial
statements for the past three years? (Item 21)

Can I see samples of the contracts I will be asked to sign?
(Item 22)

Franchise laws require that a UFOC be delivered to you, the
prospective franchisee, at the earlier of either the first personal
meeting to discuss the specifics of the franchise (a trade show
presentation generally doesn't count), or 10 business days
before you pay money or sign a binding contract.

Biz Opps & Network Marketing

Business opportunities are less structured than franchises, so
the definition of what constitutes a business opportunity isn't
easy to pin down. In essence, a business opportunity is any package
of goods or services that enables the purchaser to begin a business
and in which the seller represents that it will provide a marketing
plan or sales plan, that a market exists for the product or
service, and that the venture will be profitable.

This definition encompasses a dizzying variety of business
packages, such as product distribution programs, product and
service reselling, work-at-home programs based on computerized
services, selling advertising for publications on the Internet, and
specialty product sales. A business opportunity does not generally
feature the seller's trademark; the buyer operates under his or
her own name.

Business opportunities tend to be less expensive than
franchises, and they allow the buyer to proceed with no
restrictions as to geographic market and operations. The purchase
price of a business opportunity venture usually ranges from a few
hundred dollars to several thousand. Business opportunities
generally don't charge ongoing royalties.

Most business opportunity ventures have no continuing supportive
relationship between the seller and the buyer; after the initial
package is sold, the buyer is on his or her own. Many independent
operators don't want the pressure of operational requirements
in their business activities and are satisfied with contacting the
seller only when specific questions arise. In addition, investors
may want to operate a homebased business on a part-time basis. In a
word, the primary advantage of buying a business opportunity is
flexibility.

But the very flexibility that makes a business opportunity
attractive is also its principal weakness as an investment. Many
buyers will spend the money, put the package on a shelf and never
take it down to put it into operation. With no continuing
relationship, contract requirements or support from the seller,
many buyers feel overwhelmed by the challenges of business and
never even get started.

Another weakness in the concept is the limited availability of
investment information. Business opportunity ventures are regulated
by the Federal Trade Commission (FTC) and 25 states. Under the FTC
Rule and most state laws, a business opportunity seller is required
to prepare and deliver to the buyer a detailed disclosure statement
before the sale takes place. Many of the state laws also require
the seller to register the program before it's offered in the
state.

However, the rate of compliance with these laws is relatively
low. Odds are, you won't receive a disclosure statement with
your investment. This means you must do all the investigating to
find out whether a particular business opportunity is right for
you.

On the Level

Multilevel marketing is big business in the United States.
Household names like Amway, Mary Kay Cosmetics and Avon have built
immense organizations of independent contractors who buy products
from the company and sell them directly to their customers. This
type of business entails a willingness to approach friends, family
and acquaintances who might be interested in buying the soap,
cosmetics, telephone service or other product or service you
represent.

Many people who get involved with a multilevel marketing program
work the business on a part-time basis or only for a season to
bring in extra money. The financial investment is low, usually not
more than $200, and there are usually no required purchases. You
take orders for products from your customers and submit the orders
and payments to the company; products are sent directly to you or
your customers. You make money on the difference between the retail
prices paid by your customer and the cost of the products from the
company. Multilevel marketing companies may also pay you a
commission on the sales made by those you recruit to the network,
called your "downline."

There is probably no business package available to the new
entrepreneur that is easier to get into and out of than a
multilevel marketing program. For a few hundred dollars, you
receive access to a line of products or services with a recognized
trademark. Sales support is often made available through managers
in your "upline"; they have a direct interest in seeing
you succeed.

Regional meetings can be energizing. Mary Kay Cosmetics and
others are famous for the levels of enthusiasm, motivation and
empowerment that representatives feel at large gatherings of the
network. As you work your way up the sales ladder, generous bonuses
and prizes may also be offered.

Like every other type of business, multilevel marketing has its
weaknesses. For one, the business depends largely on sales made to
friends, family and acquaintances. Not everyone is comfortable
making sales presentations to people close to them. Also, the
turnover among direct sales representatives is high, possibly
reflecting the short-term goals of most people who get involved. It
could also reflect disappointment with the quality of the product
or service. If a multilevel marketing program is new, the
risks--and the allure of potential rewards--increase. As with any
business, thorough research is your best defense against getting
involved in an undesirable program.

What It's Really Like

When Vanessa Barron's employer asked her to relocate two
years ago, the airline sales executive decided to start her own
business instead.

Barron's choice of business was partially the result of a
chance occurrence: When her husband, Lawrence, had to visit
BikeLine's headquarters regarding a damage claim related to his
UPS account executive job, he liked what he learned about the West
Chester, Pennsylvania, bike sales and repair company's
franchise opportunities. The couple opened a BikeLine franchise in
Coatesville, Pennsylvania, in March 1996.

Vanessa, 42, found the franchise appealing because it came with
a built-in support system--from the franchisor as well as from its
company-owned locations. "You have a wealth of knowledge in
the people who have been running the corporate stores," she
says.

Would she recommend franchising? Absolutely. "A lot of the
mistakes you're bound to make starting a business can be
[avoided] with the guidance you get from corporate locations or
your franchisor," says Vanessa.

She advises prospective franchisees to do their homework before
signing up, however: Look at the franchisor's financial track
record, and investigate the amount and type of support it provides
franchisees.--Rachel Balko

If the Shirt Fits

Linda and Don Rienzo say they couldn't have asked for a more
supportive parent company. When the Las Vegas couple opened their
Definitions T-shirt kiosk in a mall in 1995, the business
opportunity company helped every step of the way. "Whatever we
needed in the beginning, they were there to help guide us until we
felt comfortable dealing with it on our own," says Don.

The Rienzos had been selling another product in the same mall
when a Definitions kiosk caught their eye. It looked like a good
product--T-shirts with attitude--and when the owner decided to sell
the business, they scooped it up. "We thought it had a lot of
potential for the tourist malls in town," says Don. "So
we approached the parent company and wound up becoming its dealer
out here."

The Rienzos opened their second kiosk, which they called
"Nationalities," in a large outdoor mall called the
Freemont Street Experience, where crowds of spend-happy tourists
have contributed to their success.

And they attribute much of this success to their parent
company's support. Definitions extended credit to the Rienzos,
walked them through the early stages of the business, provided
manuals and gave pointers to help get them started. "Now they
help us come up with new [products] to keep things fresh,"
says Don. "It has really worked out well. We like what we
sell, and we're proud of it. I think customers can sense that,
and it really makes things work for us."--Jesse
Hertstein

Toy Story

Product possibilities are infinite in multilevel marketing, but
how often can distributors say what they're selling promotes a
brighter future? Junith Koon, a Discovery Toys Inc. educational
consultant, makes this claim with conviction. The 20-year-old
Livermore, California, company has given Koon the opportunity to
better the lives of her children and others with its award-winning
products.

This toy story began when Koon's now college-age daughters
were toddlers. She signed up with another company that sold
educational toys and books, but nine months later, that division
folded. Her growing customer base wasn't stranded, however:
Koon had heard about Discovery Toys and sought out Discovery's
educational consultant in her hometown of Atlanta. "It was a
flexible, part-time business I could run from my home that, instead
of taking time away from my children, really benefited them,"
she says.

What started as a brief selling stint until her daughters
reached school age turned into a full-time success story for Koon,
now 50. After 16 years selling Discovery's developmental
children's products, the former librarian has earned the title
of "ruby sales director"--only one step away from
"diamond sales director," the apex of Discovery's
selling stardom. Koon's downline--approximately 1,200
people--should make more than $2 million this year.

And reaching new heights shouldn't take long: Climbing the
ladder of success is much easier when you know you're making a
difference. "I've become a better parent as a result of
working with Discovery because it taught me so much about children
and child development," says Koon.

Koon can see how fortunate she's been. "I was able to
go to [my children's] swim meets and honors assemblies,"
she says, "while having a very successful business that
brought me income and a sense of personal accomplishment." Who
says you can't gain success through fun and games?--Michelle
Prather

Andrew A. Caffey is a practicing franchise attorney in the
Washington, DC, area; a former general counsel of the International
Franchise Association; and an internationally recognized specialist
in franchise and business opportunity law. E-mail him at ACaffey@compuserve.com